The NZ ETS and New Zealand's provisional carbon budget for 2021-2030

This page outlines how New Zealand’s provisional carbon budget for 2021-2030 and forecasted domestic emissions are projected to be distributed for the 2030 emission reduction target. This is under current New Zealand Emissions Trading Scheme settings and policies.

It has been updated in April 2018 to reflect the most recent emissions projections.

About the provisional carbon budget

New Zealand’s Nationally Determined Contribution (NDC) under the Paris Agreement is a target to reduce emissions 30 per cent below 2005 levels by 2030.

We use a multi-year ‘carbon budget’ approach to measuring progress towards our targets. This means that progress towards this target is measured by accounting for emissions in all the years of this target period (2021-30). New Zealand’s provisional carbon budget is currently estimated at 601 Mt CO2-eq. This is the amount of CO2-eq emissions that New Zealand can produce and still meet the target.

Emissions projections indicate that with current policies, New Zealand’s emissions will be higher than this carbon budget, at 804 Mt CO2-eq over 2021-2030.

New Zealand’s total emissions can be greater than the carbon budget and we can still meet our target as long as emissions above our target are offset by emission removals (from forests in New Zealand) and/or emission reductions purchased from overseas.

Distributing the provisional carbon budget

It is the Government’s role to determine how this carbon budget is shared out to the economy both inside and outside of the NZ ETS. Figure 2 shows projections over 2021-2030 of how the carbon budget is expected to be distributed under current policies and settings (as of April 2018).

Around half of New Zealand’s emissions are currently exempt from surrender obligations under the NZ ETS (most notably from the agricultural sector). This uses up part of the carbon budget.

The remainder of the carbon budget is available to sectors covered by the NZ ETS. For these sectors to benefit from their share of the carbon budget, the Government has to allocate a corresponding number of units to market participants. It can do this by giving them away (free allocation) or by selling them.

Free allocation for emissions intensive and trade exposed activities uses up some of NZ ETS sectors’ share of the carbon budget. Under current NZ ETS settings, projections indicate that some of the NZ ETS sectors’ share of the carbon budget will not be distributed. This remaining carbon budget could be distributed into the NZ ETS market by other means (eg, sold by auction).

If this carbon budget volume is not fully allocated to NZ ETS market participants, more cost will be imposed on the economy than necessary for meeting the 2030 target.

Figure 2 Distribution of the carbon budget under current policies and NZ ETS settings (as of April 2018)*

*See below for an explanation of the key. The data is also presented in table format below.

Explanation of key

Forecast gross emissions – The gross emissions are forecast with current policy settings as of April 2018.

Provisional carbon budget – This is based on our NDC under the Paris Agreement and our target to reduce emissions to 30 per cent below 2005 levels by 2030. This provisional carbon budget is currently estimated at 601 million tonnes of carbon dioxide equivalent (Mt CO2-eq) over the 2021-2030 period. See the United Nations Framework Convention on Climate Change (UNFCCC) technical note (PDF, 662 KB) [UNFCCC website] for details on how carbon budgets are calculated.

Forecast abatement volume required – The volume of emission reductions or removals that New Zealand will need to meet the 2030 target, also referred to as the abatement task. This is likely to come from a mixture of domestic emissions reductions, removals from domestic forestry, and purchasing international emission reductions. The size of the abatement task is a key factor in determining the cost of meeting our target. This cost depends on the amount of emissions reductions we need as well as the cost of reducing emissions domestically or purchasing emissions reductions internationally.

Estimated emissions outside NZ ETS sectors – This is an estimate of New Zealand’s emissions that are not covered by the NZ ETS (eg, biological emissions from agriculture and a comparatively small amount of waste emissions).

Forecast free allocation volumes – This refers to NZUs allocated for emissions-intensive trade-exposed (EITE) activities. Free allocation volumes have grown at a rate of about 3-5 per cent over past years. As most free allocation volume goes to a small number of large industrial sites, there is the possibility that free allocation volumes could change abruptly in the future due to unanticipated changes in production.

Remaining carbon budget volume – This has been calculated by assessing the volume of the carbon budget not used up by emissions outside the NZ ETS or by free allocation. This volume could be available for sale through auctions in the future.

Uncertainties in the projections – Projections of emissions and removals are inherently uncertain. Variables such as economic and population growth, commodity prices, the assumed carbon price, the assumed rate of afforestation and deforestation and the harvest age of forests have significant effects on projected emissions and removals. Seasonal changes, especially variation in rainfall, can affect both energy and agricultural emissions. There is also uncertainty in the methodology to estimate emissions, particularly from biological sources such as agriculture and forestry.

The numbers: New Zealand’s 2030 target and distribution of the carbon budget under current policies and NZ ETS settings (as of April 2018, reflected in Mt CO2-eq)